HW # 1 - Chapter 16 - Debt Level Probability PV Interest Tax Shield 0 0 0 40 0 0.76 50 0.01 0.95 60 0.02 1.14 70 0.07 1.33 80 0.16 1.52 PV Distress Cost

HW # 1 - Chapter 16 - Debt Level Probability PV Interest...

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Debt Level 0 40 50 60 70 80 Probability 0 0 0.01 0.02 0.07 0.16 PV ( Interest Tax Shield) 0 0.76 0.95 1.14 1.33 1.52 PV Distress Cost - 2 0.00 0.00 0.02 0.04 0.13 0.30 PV Distress Cost - 5 0.00 0.00 0.05 0.10 0.33 0.76 PV Distress Cost - 25 0.00 0.00 0.24 0.48 1.67 3.81 Gain - 2 0.00 0.76 0.93 1.10 1.20 1.22 Gain - 5 0.00 0.76 0.90 1.04 1.00 0.76 Gain - 25 0.00 0.76 0.71 0.66 -0.34 -2.29 Financial Distress Options 2 5 25
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90 Beta 0 0.31 Risk-Free Rate 5% 1.71 0.59 1.48 7.38 1.12 0.23 -5.67
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Probability (%) Payoff (Millions) Payoffs (minus 40) A 1 75 $ 35 B 0.5 140 $ 100 0.5 0 $ - C
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  • Fall '15
  • Ben Chen
  • Debt, Interest, Harshad number, PV Distress Cost, higest payoff

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